Government meddling hurts first time buyers

Peter Simpson is the former president and CEO of the Greater Vancouver Home Builders Association and he’s got a column in the Vancouver Sun that strings together some numbers and anecdotes and then blames the federal government for hurting affordability.

Since this column is about first-time homebuyers, I must comment on federal Finance Minister Jim Flaherty’s changes to the rules governing federally insured residential mortgages, including a reduction in the maximum amortization period from 30 to 25 years.

It is not clear that a tightening of mortgage rules helped Canadians to manage their debt. What is clear is that the shorter amortization period has reduced housing demand by eroding affordability.

Now of course this ‘reduction’ in the maximum amortization period is actually just a reset to a historical norm, not to mention that it only applies to government insured loans.

Mr. Simpson refers to an older generation with homes that are paid off, but I can guarantee you that those homes were not bought on a 30 year amortization, so did longer morts help or hurt affordability? Is it possible that pushing more money into the housing market simply helped to drive up prices and worsen affordability?

It may be that Mr. Simpson is not primarily concerned with the well being of the first time buyer, but is instead concerned with a reduction of customers for his industry.

His conclusion is especially telling:

Finally, Vancouver-area pundits predict there is a sales shift to moderately priced homes, and a buyers’ market will continue until mid-2013. There is no assurance interest rates will remain low through 2013. The bottom line is it seems to be a good time to consider buying a new home.

Read the full thing over at the Vancouver Sun.

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Con-Rad
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Con-Rad
3 years 6 months ago

Some people are very worried about 2013. If you say something enough people will start to believe it. This is strategic and will not be the last article you will read. Are you scared? I would be. These guys will fight like a cornered animal to get their way out of this one. Greed is a powerful drug.

Vote that truth down, bears.

rp1
Guest
rp1
3 years 6 months ago
@Con-Rad: “Some people are very worried about 2013.” Why? “If you say something enough people will start to believe it.” Why would that affect a market, aside from a temporary blip? For houses especially. The investment value of houses is clear. You buy a house to not pay rent. “Are you scared? I would be.” One should never make investment decisions based on fear. It usually turns out worse than greed. “These guys will fight like a cornered animal to get their way out of this one.” Who? There is nothing to get out of. “Greed is a powerful drug.”… Read more »
Ralph Cramdown
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Ralph Cramdown
3 years 6 months ago
Hidden among the mouldy folds of an otherwise dubious article are two iffy propositions: First, the assumption that house prices are the independent variable (“What is clear is that the shorter amortization period has reduced housing demand by eroding affordability.”) Um, nope. Everybody who wanted a house before likely still wants one. What about the people who wanted to sell before? Do they still want to sell? OK then. Second, that Flaherty is aiming for a permanently high plateau/soft landing/what-have-you (“if Flaherty and his government really want stability in housing markets…”) Have any of F’s actions signalled that he wants… Read more »
patriotz
Member
3 years 6 months ago
@Ralph Cramdown: “Have he and Carney said or implied that they would be comfortable with stable prices?” Sounds like it: Pressures in the Toronto and Vancouver housing markets are moderating, Canadian Finance Minister Jim Flaherty said on Thursday, with neither a bubble nor a hard landing in sight for the country’s property market. “I don’t think there is a bubble, or a danger of a bubble in Toronto and Vancouver. I’m actually comfortable with the fact that we’ve seen some moderation in pressures in that market, both of those markets and across the country,” Flaherty told reporters. http://ca.reuters.com/article/businessNews/idCABRE8931HC20121004 I don’t… Read more »
Anonymous
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Anonymous
3 years 6 months ago

Time magazine has an article about the Canadian real estate bubble and the comments from Canadians below the article are mocking the very notion that we could be in a bubble. VREAA summarizes:

“The majority of comments below this article, as of 2 Dec 2012 p.m., are noteworthy for indignant hubris. When one sees terms like “laughable” and “little doubt” being used to describe positions, one should be particularly vigilant. Also interesting that the author and the publication are accused of sensationalism and “trying to generate a tempest”:”

http://vreaa.wordpress.com/2012/12/02/time-magazine-asks-bearish-questions-about-our-re-market-canadian-readers-indignant/#comments

Ralph Cramdown
Guest
Ralph Cramdown
3 years 6 months ago

@patriotz: But as of the date of the Flaherty quote, prices in Vancouver had been declining for some time, with downtown Toronto condo inventories up markedly, and he would have known that. “Pressures are moderating” my ass. Sure, given his druthers, Flaherty would love a soft landing. But given a choice between reining in credit (knowing that prices would fall) and letting ‘er ride, you can see what he’s done. Opinions differ on the man’s intelligence, but I’d bet he’s been advised that it isn’t going to be pretty and is under no illusions.

Anonymous
Guest
Anonymous
3 years 6 months ago
Gotta love this comment on the Time article by K. Navaratnam: ” The very notion of Canada having a real-estate collapse similar to the american one is highly laughable. It wasn’t merely in vogue to list Canada as a stable economy in the immediate aftermath of the 2008 financial meltdown… four years later, it remains the best performing economy in the west, with the Canadian dollar now being considered by the IMF for reserve currency status. The Canadian financial structure is far more risk-averse than its western counterparts and will remain so. While it is true that there are no… Read more »
Anonymous
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Anonymous
3 years 6 months ago
Commenters on the Time article are also under the delusion that buyers in Canada are required to have a min. 20% down payment and that Mark Carney was promoted as Governor of Bank of England because of his track record at managing Canada’s strong and healthy economy. The denial in those comments is shocking. Most bearish news story in Canadian media have a mixture of comments, including many bearish comments that acknowledge the market here is in trouble. It seems that the Time article has rubbed some Canadians the wrong way. I think Canadians get their backs up when they… Read more »
news junky
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news junky
3 years 6 months ago
From CBC: “A B.C. woman stands to lose her home to her lawyer, who is moving to foreclose on her to pay his six-figure bill…Fotsch got into the predicament after being sued by her ex-husband, even though she won the case and the court ordered him to pay her costs… Fotsch, 54, lives near Pemberton with her disabled son and earns a modest income. Her only asset is her house and the 12 hectares of land it sits on… A decade ago, her common law ex-husband Leigh Wilson went after Fotsch, trying to get a piece of her property after… Read more »
elvince
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elvince
3 years 6 months ago

Has anyone ever heard a home builder or a realtor say that now is not a good time to buy? Me, never.

Anonymous
Guest
Anonymous
3 years 6 months ago

@news junky:
What do you call a bus full of lawyers driving off a cliff?…
A good start.

bullwhip29
Guest
bullwhip29
3 years 6 months ago
Honestly, I am getting tired of these types of articles already. Those of you that feel the gov’t is giving you a raw deal, give your heads a shake. If that purchase of a so called “dream” home is suddenly not doable under the new guidelines, you shouldn’t have been thinking about it in the first place. Wake the f&*$ up everyone! What has transpired to date should not have come as a surprise. IMHO, they could have done a whole lot more, but didn’t, so consider yourselves lucky. FWIW, I see rates staying stuck at rock bottom levels for… Read more »
Population Control by Retroactive Darwinism
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Population Control by Retroactive Darwinism
3 years 6 months ago
@news junky: “I’ve done nothing wrong. What have I done wrong?” Priceless! Lady, if you don’t know, you definitely got what you deserve. Your enormous sense of entitlement finally fell out of the sky and squashed you like a bug! Filed under the same category is Peter Simpson’s shameless Vancouver Sun plea for first time buyers to have the government give loans to idiots that the bank wouldn’t otherwise lend to. Where should these first time buyers live you may ask? Send them back to their parents’ basement or whatever country they came from. Call it Retroactive Darwinism. If you… Read more »
bullwhip29
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bullwhip29
3 years 6 months ago

@ rp1 December 3rd, 2012 at 5:12 am

“Why would that affect a market, aside from a temporary blip? For houses especially. The investment value of houses is clear. You buy a house to not pay rent.”

On planet Earth, markets don’t work this way. For the vast majority of homeowners, houses wind up being terrible “investments” especially after one factors in the cost of servicing the mortgage for a home that was likely out of their price range in the first place. The fact that you even mentioned the “investment value” of houses says a lot too.

News Junky
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News Junky
3 years 6 months ago
Just to be clear, I do feel sympathy for the lady getting foreclosed on in the CBC story. Hers is not a story of someone who binged on cheap credit and overpriced housing. It seems to me she was taken advantage of by her lawyer who is charging her 18% interest (is that even legal?) and who allowed the case to drag on for 9 years. But she does sound like someone who has poor financial management skills. The article says the bank wouldn’t lend her the money for the lawyer bill because she already has “another mortgage”. I doubt… Read more »
Exports Down. What to do?
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Exports Down. What to do?
3 years 6 months ago

@News Junky: Difference? Unscrupulous Lawyer or RE Marketing Cartel.

Pick your peril. It is always buyer beware. Fools will be eliminated.

Recklessly engaging a divorce lawyer at all costs is no different than buying the biggest possible home. Both types of people are trying to win at all costs because they think they are special. The divorcee could have settled or at least shopped her case around and the RE kiter could have made themselves aware of the risk they were taking with borrowed money. I don’t see a difference.

N
Guest
N
3 years 6 months ago

@News Junky:

“Hers is not a story of someone who binged on cheap credit and overpriced housing.”

Right. So it doesn’t really have anything to do with Vancouver real estate.

Anonymous
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Anonymous
3 years 6 months ago

The Conservatives must be getting worried re: all the headlines about our imminent crash. I wonder if they will blink and roll back the mortgage changes?

Many Franks
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Many Franks
3 years 6 months ago
The Bank of Canada counter-attacked the WSJ article comparing Canadian debt to American debt, and it looks like they’ve just published the methodology. Long story short: to compare with the States, Canadian disposable income gets revised upwards by a fair chunk (big yay!) while Canadian debt also gets revised upwards by a small amount (tiny boo/hiss). The earlier report mentioned the social safety net as a major difference, but the follow-up analysis seems to have omitted that difference. (Hard to quantify?) Hope everyone feels extra-rich today. It should be noted that this is considered an interim solution and this note… Read more »
rp1
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rp1
3 years 6 months ago

#14 @bullwhip29: What you’re saying simply isn’t true. Houses normally are a good investment if the value is stable and leverage is high. Good investments become bad investments when people overpay. By “clear” I mean the value of a house is easy to compute. The average person should be able to figure it out.

GVREB
Member
GVREB
3 years 6 months ago
Firm trend of lower prices in Greater Vancouver as demographic changes bring motivated sellers to market FOR IMMEDIATE RELEASE ON VCI VANCOUVER, B.C. –December 3, 2012 – The pace of property sales slowed in November 2012 from October 2012 to be the second slowest month of November in the past 12 years. The slower selling pace combined with higher inventory levels continues to put downward pressures on home prices. In addition, the leading edge of a demographic change is appearing where aging home owners are selling their long-held principal residences in order to downsize in their retirement years. In certain… Read more »
Ralph Cramdown
Guest
Ralph Cramdown
3 years 6 months ago

@Anonymous: “I wonder if they will blink and roll back the mortgage changes?”

You and every other real estate agent and mortgage broker.

mac
Member
mac
3 years 6 months ago

I couldn’t take the comments anymore on Time. I had to post replies.

bullwhip29
Guest
bullwhip29
3 years 6 months ago
@ rp1 December 3rd, 2012 at 9:15 am Price stability AND high leverage can’t occur at the same time (or least for any sustainable time period). Easy credit = high leverage = inflated prices The average person thinks today’s prices are normal and that even the slightest deviation from that should be viewed as an opportunity to buy. The credit bubble, which has been expanding for decades, has only begun to unwind itself. Perhaps one day, we will stop thinking of homes as trading/investment vehicles and simply view them as places to live. Perhaps the banks will also stop preaching… Read more »
Village Whisperer
Member
Village Whisperer
3 years 6 months ago

@Many Franks: Thanks for the links Many. Just as a point of clarification though, the WSJ article is countered by National Bank (which since it is replying to a US article is listed as ‘The National Bank of Canada’). This entity is not the Bank of Canada.

Bob123
Guest
Bob123
3 years 6 months ago

There are some big time societal issues associated with an elder generation that facilitates the expansion of debt incurred younger generations. That is, there are many arguments that debt accumulation is not the way to prosperity. However, this debt accumulation is definitely in the best interest of the older generation that is looking to cash-out.

Many Franks
Guest
Many Franks
3 years 6 months ago

@Village Whisperer: Whoops, thanks for the clarification. That explains the differences in methodology (social safety net vs. some fairly dry accounting line items).

gokou3
Guest
gokou3
3 years 6 months ago

Where was the complaint when the government relaxed mortgage rules back in the 2000s?

Bull! Bull! Bull!
Guest
Bull! Bull! Bull!
3 years 6 months ago
Let’s assume a real estate collapse is in the cards for Vancouver. We know that if the Canadian economy is threatened by a real estate collapse, the federal government will provide credit with the stroke of a pen. Doing this will see a Vancouver crash averted, like it was in 2008. Therefore, for bears to get their wish the government would have to engineer a soft landing. Soft landing? We all know those are impossible according to bear logic. And if we start to crash the market will be back stopped by the Fed. Therefore, real estate will keep going… Read more »
N
Guest
N
3 years 6 months ago

@Bull! Bull! Bull!:

“the federal government will provide credit with the stroke of a pen. Doing this will see a Vancouver crash averted”

Good point! I wonder why they didn’t think of that in the US, Spain, Japan, etc. Maybe their pens were broken. I know ball points sometimes just quit on you. Let’s hope the federal government has been to Staples recently.

Vote Down The Facts
Guest
Vote Down The Facts
3 years 6 months ago

@Anonymous: “I wonder if they will blink and roll back the mortgage changes?”

It’s possible, but not very likely in my opinion. They clearly don’t have room to drop rates much further, so they’ve definitely created some wiggle room for themselves. Politically it wouldn’t make much sense to do a U-turn, though.

Can't wait
Guest
Can't wait
3 years 6 months ago

@Anonymous:
“I think Canadians get their backs up when they are being called out by Americans. These Canadians are essentially insisting that Canadians are superior and smarter than Americans, Spanish, Irish, etc.”

It’s the colonial mentality of COCs coming out.

Bull! Bull! Bull!
Guest
Bull! Bull! Bull!
3 years 6 months ago

@N: “I wonder why they didn’t think of that in the US, Spain, Japan, etc. Maybe their pens were broken.”

That’s what you said in 2005, 06, 07, 08, 09, 10, 11. And now 2012 is almost over. Maybe there’s something you’re missing. Just a thought.

Yellow Helicopter
Guest
Yellow Helicopter
3 years 6 months ago

Hi All,
Really appreciate all your comments and insight – I’ve learned so much!

Hoping one of you can help – I’ve been watching an estate sale in North Vancouver since June or so… It’s a 5 bed bungalow that was originally listed at $895k, last listed price was $699k. Can’t see it anymore, and would love to know if it has sold and if so, for what price?

Address is 519 East 1st Street, North Van. (With a lovely partial view of the grain elevator. 😉

Yellow Helicopter
Guest
Yellow Helicopter
3 years 6 months ago

Whoops, sorry, – 518 East 1st street.

Anonymous
Guest
Anonymous
3 years 6 months ago
@Bull! Bull! Bull!: “We know that if the Canadian economy is threatened by a real estate collapse, the federal government will provide credit with the stroke of a pen. Doing this will see a Vancouver crash averted, like it was in 2008.” Yawn…If they are able to avert a real estate crash with a stroke of a pen this will be the first time in history this will be accomplished. Do they not have pens in the US, Spain, Ireland and Japan? BTW if they were not looking for a contraction on house hold debt which means a real estate… Read more »
Ralph Cramdown
Guest
Ralph Cramdown
3 years 6 months ago

@Bull! Bull! Bull!: “Let’s assume a real estate collapse is in the cards for Vancouver.”

How bad are we supposed to assume things will get before the government steps in? 2 years of SFH inventory on the West Side? Places selling at 30% below assessment in Richmond?

N
Guest
N
3 years 6 months ago

@Bull! Bull! Bull!:

“That’s what you said in 2005”

That’s right, I was one of the few people using the US crash of 07/08 to back up my arguments against Vancouver real estate in 05. I tell you, my prognostication skills are uncanny.

Anonymous
Guest
Anonymous
3 years 6 months ago

@Bull! Bull! Bull!: “That’s what you said in 2005, 06, 07, 08, 09, 10, 11. And now 2012”

Yes and real estate was tanking around the world as you were denying it. We are now watching it unfold in Canada. Your still in denial. A little scared?

rp1
Guest
rp1
3 years 6 months ago

#24 @bullwhip29: “Price stability AND high leverage can’t occur at the same time (or least for any sustainable time period).”

Yes it can, if interest rates fall. It’s what happened over the last 30 years.

bullwhip29
Guest
bullwhip29
3 years 6 months ago
@ Bull! Bull! Bull! December 3rd, 2012 at 11:04 am You are looking at things ass backwards. Vancouver (and Cda for that matter) is not the tail that wags the dog. The Fed can not backstop the market forever (as the BOJ could not). After having kept things relatively calm and stable for the past four years, I think the Fed is (or nearly is) out of bullets now. The markets have been in a funk ever since QE3 (or QEternity) was announced in Sept. The people are not buying the BS excuses anymore. What worked in 2008/09 won’t be… Read more »
Karmic Retribution
Guest
Karmic Retribution
3 years 6 months ago
@Bull! Bull! Bull!: “That’s what you said in 2005, 06, 07, 08, 09, 10, 11. And now 2012″ Yes and real estate was tanking around the world as you were denying it. We are now watching it unfold in Canada. Your still in denial. A little scared? ________ I am a little perplexed why some bears even try to engage, convince or educate bulls on this site or in general. For those that have sat on the sideline for so many years and are waiting for affordable prices, or for that time when they can tell their mother-in-law they were… Read more »
Sidelines
Guest
Sidelines
3 years 6 months ago

@Yellow Helicopter – that North Van house sold on Nov. 20th for 690K.

bullwhip29
Guest
bullwhip29
3 years 6 months ago

@ rp1 December 3rd, 2012 at 11:49 am

I guess your definition of price “stability” is different than many others.

Permanently low interest rates will not equate to prices that go up (or remain “stable”) forever. Just ask the Japanese how that’s worked out for them as they deal with the deflationary death spiral they’re in and are not spending their hard earned savings as a result. Given that most in the western world don’t have any savings, I expect a deflationary crash of significantly greater magnitude than the one the Japanese have experienced.

HAM Solo
Guest
HAM Solo
3 years 6 months ago
A little follow up on Ben’s presentation, and how it is received by a typical boomer housing bull. As a part of my day job I am part of a committee that oversees a particular investment portfolio. The “trigger puller” on this particular portfolio is a boomer of long tenure but little analytical capability. I mentioned that I had been to Ben’s talk and he was intrigued by the title on the presentation book, ‘the future of Vancouver Real Estate.” However, once I told him that Ben was basically calling for a crash, he dropped the package of slides like… Read more »
RealityCheck
Guest
RealityCheck
3 years 6 months ago
One thing that would bring down housing prices is a higher interest rate by about 3%. Here’s why: Say mike has saved $200,000 for a down payment on a $500,000 house. Right now, he could get about 1.5% interest on that money, earning him about $250 per month. After the 3% rise, he would earn $750 per month. Also, housing prices would correct by about 10% (conservative estimate), and the house he was interested in would be about $450,000. So now what? He could continue to rent by putting the $750 towards rent and making up the balance. The $250,000… Read more »
The usual suspects are slime balls
Guest
The usual suspects are slime balls
3 years 6 months ago

Finally, Vancouver-area pundits predict there is a sales shift to moderately priced homes, and a buyers’ market will continue until mid-2013.

If the great and powerful Vancouver-area pundits predict the buyers market will continue until mid 2013, then there is no need for the government to take action, as all will be well by next summer.

Read more: http://www.vancouversun.com/business/First+time+homebuyers+face+continuing+affordability+problems/7638900/story.html#ixzz2E1RYhfFW

Wakeup Call
Guest
Wakeup Call
3 years 6 months ago

No need to fret BULL BULL BULL.

There is still time to sell if you discount the price enough…you will be sorry you didn’t a year from now.

With the main stream media no longer able to ignore what every respected economist has been trying to warn you about, 2013 could be worse for Vancouver and Toronto than Phoenix and Miami was in 2007.

Anonymous
Guest
Anonymous
3 years 6 months ago

“Some people are very worried about 2013.”

some people are insecured and worried for the rest of their lives. want proof? ask those posters on bear blogs.

Vote Down The Facts
Guest
Vote Down The Facts
3 years 6 months ago

@N: “That’s right, I was one of the few people using the US crash of 07/08 to back up my arguments against Vancouver real estate in 05. I tell you, my prognostication skills are uncanny.”

Do you think any Canadian crash will play out in the exact same way as it did in the US? One way of looking at it is that the Canadian government may not respond in the exact same way, and may actually be in a better position to act having observed what happened in the US.

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